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Chapter 20: Q9. (page 430)

In 2018, manufacturing workers in the United States earned average compensation of \(21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of \)3.20 per hour. How can U.S. manufacturers possibly compete? Why isn鈥檛 all manufacturing done in Mexico and other low-wage countries?

Short Answer

Expert verified

The U.S. manufacturers compete only if the worker's productivity is high.

The manufacturing is not done in Mexico and other low-wage countries because of trade barriers.

Step by step solution

01

Step 1. Differences in productivity as a reason for competing against low wage workers

The manufacturing workers in the United States are earning more wages than the workers in Mexico is because of the difference in productivity. If the U.S. manufacturers have high productivity than the other nation's workers, then the U.S. workers can earn a high wage. The high wage is equalized with high productivity.

02

Step 2. Reason why all manufacturing is not done in low wage countries like Mexico

The trade barrier restricts the free flow of goods and services; thus, it also limits the production of goods in other nations. Therefore, all manufacturing is done not in Mexico and other low-wage countries because of trade restrictions.

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Most popular questions from this chapter

Suppose that the opportunity-cost ratio for sugar and almonds is 4S 鈮� 1A in Hawaii but 1S 鈮� 2A in California. Which state has the comparative advantage in producing almonds?

  1. Hawaii

  2. California

  3. Neither

In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles?

  1. Country A

  2. Country B

Refer to Figure 3.6, page 57. Assume that the graph depicts the U.S. domestic market for corn. How many bushels of corn, if any, will the United States export or import at a world price of \(1, \)2, \(3, \)4, and \(5? Use this information to construct the U.S. export supply curve and import demand curve for corn. Suppose that the only other corn-producing nation is France, where the domestic price is \)4. Which country will export corn; which county will import it?

The accompanying hypothetical production possibilities tables are for New Zealand and Spain. Each country can produce apples and plums. Plot the production possibilities data for each of the two countries separately. Referring to your graphs, answer the following:

New Zealand鈥檚 Production Possibilities Table (Millions of Bushels)


Production Alternatives

Product

A

B

C

D

Apples

0

20

40

60

Plums

15

10

5

0


Spain鈥檚 Production Possibilities Table (Millions of Bushels)


Production Alternatives

Product

R

S

T

U

Apples

0

20

40

60

Plums

60

40

20

0

  1. What is each country鈥檚 cost ratio of producing plums and apples?

  2. Which nation should specialize in which product?

  3. Show the trading possibilities lines for each nation if the actual terms of trade are 1 plum for 2 apples. (Plot these lines on your graph.)

  4. Suppose the optimum product mixes before specialization and trade were alternative B in New Zealand and alternative S in Spain. What would be the gains from specialization and trade?

Suppose that the current international price of wheat is \(6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than \)6?

  1. Higher.

  2. Lower.

  3. It will stay the same.
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